Considering a Partner in Business? Here are a Few Tips…

There are many advantages to partnerships. Smart use of a partnership may allow you to do more deals from a financial and time standpoint. It also spreads out risk and liability. Its part of the “Two heads are better than one” or ‘There is safety in numbers” theories. However, approach a partnership with caution and due diligence, especially if you’re new at any type of business venture! If you pick the right partner it can feel like it was “heaven-sent” but if you pick the wrong partner or partners it can make the business venture a tough road to travel. Some if the disadvantages can be dissimilar work ethics and styles, honesty and trust issues, time consuming power struggles and poor communication styles.

When picking potential partners it is important to ask yourself a few questions and have some specific parameters in mind for the partnership:

• Why do I need a partner? You may want a partner for their credit or funding a project, their skills and expertise, their business contacts or many other reasons. Before you become partners you should check one another out to make sure you have complimentary work styles and a thorough understanding of the project or business including return on investment, duties, communications, and other pertinent items. You should pick a partner or partners that can bring something to the table such as skills you don’t have or contacts you don’t have but need for the project or business. If funding will be an issue then the funding partner(s) needs to bring proof of funds to the table from the start.
• What will I give up in return? With every upside there is a downside. You will dilute your profits with a partner but on the other hand you may be able to leverage your money and time better because it allows you to complete more projects. In addition, if you are a control freak and insist on micromanaging every aspect of a project or business then a partnership may not be a good fit for you.
• Do I have other options? Can I rely on a mentor or advisor? Can I hire the missing components by using the services of an attorney, accountant, contractor, lender, consultant or another? In most cases you will find that in single projects such as joint ventures that possibly hiring the right professional or borrowing money yourself (if you can) might be a cheaper alternative than some sort of split with a partner. In a long term business obviously there are many other factors that come into play.
• Is this business short term or long term?  There are a lot of differences between selecting a partner for a short term joint venture or a business that you plan to run for many years. For long term businesses, you really need to select the right partners because it is a lot like being married to someone! Many folks will start out and work with a person(s) in a joint venture or two, find that they are a good match and want to build on their previous successes, so they become partners in a long term business. Having the right paperwork is important and in addition to all the initial set-up paperwork, for a long term business you will want a Buy/Sell Agreement in case things don’t work out down the road and possibly “Key Man” life insurance policies in case something happens to one of the partners along the way.